FCPA Spring Review 2023
The Foreign Corrupt Practices Act (FCPA) headlines in the first quarter of 2023 centered not on cases but on new or revised policies and guidance from the U.S. Department of Justice (DOJ) – all of which enact key elements of the September 2022 Monaco Memorandum. On January 17, 2023, the DOJ's Criminal Division issued an updated Corporate Enforcement and Voluntary Disclosure Policy (CEP) designed to introduce incentives to companies to self-disclose potential wrongdoing quickly, cooperate with DOJ investigations proactively, and undertake extensive remediation. Then, on March 2 and 3, the Criminal Division issued new policies and guidance relevant to FCPA investigations, including a "Compensation Incentives and Clawbacks Pilot Program"; updated guidance on the "Evaluation of Corporate Compliance Programs"; and a revised policy on the selection and oversight of independent compliance monitors. We have covered these developments in detail in client Alerts accessible in the indicated links.
Companies are continuing to evaluate questions related to key aspects of these new policies, including the timing of self-disclosure, how to pursue clawbacks in light of multiple legal and practical impediments, and how to manage the DOJ's expectations on employees' use of personal devices and third-party applications for company business. Regarding self-disclosures, Assistant Attorney General (AAG) Kenneth Polite, Jr. delivered a speech on March 23, 2023 at the Global Investigations Review (GIR) Live Spring Conference that discussed this topic, among others. AAG Polite noted that, for companies for which aggravating factors are not present, the CEP's standards have not changed from prior versions, and thus that "disclosure [must occur] 'within a reasonably prompt time after becoming aware of the misconduct' [and that] we have predictably applied this definition for years." He emphasized that only in cases where aggravating factors, such as the involvement of senior management in potential wrongdoing, are present, do the concepts of "immediate" disclosure and "extraordinary" cooperation come into play. As an example, he discussed a 2018 declination in which "as to timeliness, within several weeks of [the] parent company learning about the bribery scheme at its subsidiary…, the parent company disclosed the conduct to us."
At the same conference, Andrew Gentin, the Chief of the Fraud Section's Corporate Enforcement, Compliance & Policy (CECP) Unit, stated, per GIR's coverage, that "[i]n terms of immediate, at least my personal opinion is that we're talking about a matter of weeks." He then noted that "I think that the record of the resolutions out there will show that most companies that have disclosed, let's say, up to six months, has been found to be timely." Both AAG Polite and Chief Gentin emphasized that the timeliness determination is "case-specific" and that companies remain responsible for showing why their disclosures are timely within applicable facts and circumstances.
As to what might constitute "extraordinary" cooperation, in his GIR speech, AAG Polite cited the December 2022 deferred prosecution agreement (DPA) with ABB, stating that "[a]mong other things, the company voluntarily made foreign-based employees available for interviews in the United States and produced relevant documents located outside the U.S. in ways that did not implicate foreign data privacy laws…[and] the company collected, analyzed, and organized the information, including by translating certain documents."
With regard to remediation, AAG Polite asserted in his speech that, "[t]he most effective remediation … includes conducting root cause analyses and taking action to prevent the misconduct from occurring, even in the face of substantial cost or pressure from the business" (emphasis added) which "can require significant structural changes to a company to ensure compliance and legal personnel have adequate access to corporate decisionmakers and receive necessary information from the business." He also stated that effective remediation "can also hold wrongdoers accountable, whether through termination, suspension, or recoupment of compensation." As to this last point, AAG Polite cited the December 2022 CEP declination for Safran S.A., in which, "we specifically cited as an example of full remediation the company's withholding of deferred compensation from a former employee involved in the misconduct."
AAG Polite, Chief Gentin, and other DOJ speakers who have discussed these issues recently all have echoed another common theme – that further guidance on how these policies will apply in specific facts and circumstances will come from the announcement of future dispositions. The March 2023 Corsa Coal declination, discussed below, unfortunately for the time being remains the only case announced since these policies took effect.
In another development related to implementation of the Monaco Memorandum, on February 22, 2023, the U.S. Attorneys for the Southern and Eastern Districts of New York announced a new Voluntary Self-Disclosure Policy For United States Attorney's Offices (USAOs). The new policy's "goal…is to standardize how [self-disclosures] are defined and credited by USAOs nationwide, and to incentivize companies to maintain effective compliance programs capable of identifying misconduct, expeditiously and voluntarily disclose and remediate misconduct, and cooperate fully with the government in corporate criminal investigations." There are many similarities between the USAO policy and the revised CEP announced by the Criminal Division, though there are some differences, as well. One difference highlighted by a senior Southern District of New York official in a March 1, 2023 discussion at the ABA's National Institute on White Collar Crime conference, per a GIR report, is that U.S. Attorneys only consider the involvement of "current executive management" as an aggravating factor, as opposed to the CEP, which includes involvement by former management within the scope of such aggravating factors. The official noted, "[t]here is significant overlap, but I do think Deputy Attorney General Monaco did it right with each component developing its own policies because there's not complete overlap over the types of cases and the types of emphasis that we want to highlight." Both the USAO policy and related public statements emphasize that the USAOs will continue to cooperate closely with Main Justice in many cases, including FCPA matters.
Corporate Enforcement Actions
All of the FCPA-related corporate enforcement actions for the first quarter of 2023 occurred in March. The U.S. Securities and Exchange Commission (SEC) announced two corporate enforcement actions, while the DOJ announced one declination with disgorgement and a plea agreement – the latter following a breach of a 2019 DPA by Telefonaktiebolaget LM Ericsson (Ericsson). Overall, this pace of announced resolutions is a slow start for the agencies, though it is possible that the announcements will accelerate through the year.
On March 6, 2023, metals and mining company Rio Tinto plc (Rio Tinto) agreed to pay the SEC a civil penalty of $15 million to settle charges that the company violated the FCPA's books and records and internal accounting controls provisions in connection with a scheme involving payments to a third-party investment banker to retain existing mining rights in Guinea. The SEC Order noted that the banker was paid despite various red flags and cited several internal accounting controls issues. Also noteworthy is the fact that the settlement occurred over six and a half years after Rio Tinto's self-disclosure, which occurred in November 2016.
Also on March 6, gaming and sports betting company Flutter Entertainment (Flutter) settled an SEC investigation by agreeing to pay a monetary penalty of $4 million related to alleged FCPA books and records and internal accounting controls violations stemming from the use of third-party consultants in Russia by the entities that Flutter acquired (one of which was also an issuer). The consultants, whose relationships were inherited in a mergers and acquisitions (M&A) transaction, had been tasked with helping in company efforts to legalize online gambling in Russia. Despite efforts to improve controls and compliance processes related to third parties, the SEC's Order discusses various areas in which the company acquired by Flutter did not follow or enforce those new processes, which resulted in the Russian consultants operating without adequate due diligence, written contracts, or sufficient proof of services rendered.
On March 8, 2023, the DOJ announced its first declination since issuing the revised CEP in January, although the case has clearly been in the pipeline for several years, given the enforcement actions against company management. The DOJ declined to prosecute U.S. mining company Corsa Coal Corporation (Corsa Coal) despite evidence of payments to a third-party Egyptian intermediary that certain company employees knew bribes were likely to be paid to Egyptian officials in return for contracts. Corsa Coal agreed to disgorge $1.2 million after the DOJ conducted an "inability to pay" analysis. The DOJ cited the company's self-disclosure, "full and proactive cooperation," and "timely and full remediation" as other factors under the CEP that underpinned the decision to decline prosecution. Corsa Coal is also listed in Canada, and Corsa Coal announced that the Canadian authorities also closed their investigation into the company without any action.
On March 21, 2023, Swedish telecommunications company Ericsson agreed in court to plead guilty to two FCPA-related counts "after breaching … the 2019 DPA by violating the agreement's cooperation and disclosure provisions." The new plea agreement imposed an additional $206.7 million in criminal penalties on Ericsson (on top of the penalties paid in 2019) and voided the 2019 DPA. The company agreed to probation and an extension of the term of its Independent Compliance Monitor until June 2024. We have updated our chart of Top Ten largest corporate FCPA settlements to show the revised total penalties figure.
Finally, on March 9, 2023, after a trial that lasted seven weeks, a federal jury in the Eastern District of New York convicted Full Play Group, S.A. (Full Play), a sports promotion company based in Argentina, and Hernan Lopez, a former executive at 21st Century Fox, of "wire fraud and money laundering conspiracies" related to "their participation in schemes to bribe executives of soccer's highest governing bodies – FIFA, CONMEBOL, and, in Full Play's case, CONCACAF – for the media and broadcasting rights to lucrative soccer tournaments." Full Play faces "millions" in criminal financial penalties, though the U.S. Attorney's office press release notes that Full Play's owners, Hugo Jinkis and Mariano Jinkis, "remain fugitives" since their 2015 indictment. Lopez faces up to 40 years in prison and substantial financial penalties, as well. A third defendant, Carlos Martinez, "was acquitted on both counts."
The bribery scandals related to the various football federations have resulted in many cases against individuals and corporate entities, including Swiss banks Hapoalim (Switzerland) Ltd./Bank Hapoalim B.M. and Julius Baer & Co. Ltd., another sports marketing company, and numerous individuals. The U.S. Attorney's office recent press release stated that, "[c]riminal charges have been brought against more than 50 defendants from more than 20 countries, resulting to date in guilty pleas by more than 30 individual and corporate defendants and trial convictions of 3 individuals and 1 corporation, [and] 2 corporations have resolved via deferred prosecution agreements and 3 corporations have resolved via non-prosecution agreements."
Enforcement Actions Against Individuals
The DOJ announced several new FCPA-related charges and sentencings in the first quarter of 2023. The number of charges is close to exceeding the depressed levels of 2021, and likely will continue to trend back to pre-COVID levels. The SEC did not announce any FCPA-related actions against individuals this quarter.
On January 25, 2023, a federal court sentenced Jose Luis De Jongh Atencio, a former procurement manager for Citgo, to four years in prison and one year of supervised release pursuant to charges related to receiving bribes. The same day, a court sentenced Roberto Enrique Rincón Fernández, a U.S.-based businessman, to 18 months in prison minus time served, plus one year of supervised release – a sentence influenced by Rincón's cooperation in an investigation of a corruption and money laundering scheme involving Petroleos de Venezuela (PDVSA), the Venezuelan state-owned oil company.
On January 26, 2023, a grand jury in Florida indicted current Venezuelan Supreme Court Justice Maikel José Moreno Pérez on charges of money laundering and conspiracy related to allegations that he received more than $10 million in bribes in exchange for influencing various legal cases between 2014 and 2019.
On January 27, 2023, a New York court issued final forfeiture orders for Panamanian brothers Luis Enrique and Ricardo Alberto Martinelli Linares in relation to their July 2022 sentences for bribery and money laundering – part of the long-running multiple investigations involving Odebrecht S.A. The court ordered payment of monies and assets valued at $38 million.
On January 30, 2023, a federal court in Houston sentenced Saman Ahsani, the former Chief Operating Officer of Monaco-based intermediary company Unaoil, to imprisonment of one year and one day; the court also imposed a monetary judgment in the amount of $1,500,000. The sentence was pursuant to an earlier plea agreement related to allegations of conspiracy to violate the FCPA, money laundering, and obstruction of justice.
On February 14, 2023, the DOJ announced FCPA-related money laundering charges against U.S.-based oil and gas trader Glenn Oztemel and a Brazilian-based "intermediary," alleging that both of them bribed officials from the Brazilian state-owned oil and gas company Petróleo Brasileiro S.A. (Petrobras) to obtain business.
On March 3, 2023, former Goldman Sachs Managing Director Roger Ng was sentenced in federal court in New York to 10 years of imprisonment for various FCPA and related money laundering charges. The court later ordered Ng to forfeit $35 million.
A document unsealed on March 21, 2023 revealed that Luis Alvarez Villamar, a former manager of the Ecuadorian company Decevale S.A., was sentenced to 26 months in prison on December 2022 for accepting more than $3 million in bribes from an investment company related to investments in Ecuador's police pension fund, Instituto de Seguridad Social de la Policía Nacional (ISSPOL). Alvarez had entered a plea agreement with the DOJ in May 2021.
On March 27, 2023, the DOJ filed a superseding indictment of Sam Bankman-Fried, founder and principal of bankrupt cryptocurrency exchange company FTX Trading Ltd. (FTX), that included new charges that added one count of conspiracy to violate FCPA's anti-bribery provisions related to alleged cryptocurrency payments to Chinese officials. The new charges supplement various fraud and other charges linked to FTX's business and its spectacular implosion.
Finally, on April 19, 2023, a federal court in Miami, Florida sentenced former Venezuelan Treasurer Claudia Patricia Díaz Guillen and her husband, Adrian José Velásquez each to 15-year prison sentences in the aftermath of the couple's December 2022 conviction at trial on money laundering charges related to bribes received from Venezuelan media mogul Raul Gorrin Belisario. In a separate order, the court order the couple to forfeit $136.7 million, which was determined to be the amount of the bribes accepted from Gorrin. The DOJ's statement notes that the scheme "involved bulk cash hidden in cardboard boxes, offshore shell companies, Swiss bank accounts, and international wire transfers allegedly sent by Gorrin for Díaz and Velásquez's benefit, including to purchase multiple private jets and yachts, and to fund a high-end fashion line started by Díaz and Velásquez in South Florida."
On a related front, the DOJ continues to seize assets related to corruption that fall within U.S. jurisdiction, including through its ongoing Kleptocracy Asset Recovery Initiative managed by the DOJ's Money Laundering and Asset Recovery Section (MLARS). On March 27, 2023, the DOJ announced the completion of two forfeiture cases related to assets purchased with proceeds of corruption, resulting in the DOJ's recovery of "roughly $53.1 million in cash – constituting the net liquidated value of the defendant's assets – plus a promissory note with a principal value of $16 million." The DOJ release states that two Nigerian businessmen, Kolawole Akanni Aluko and Olajide Omokore, bribed Nigeria's former Minister for Petroleum Resources, Diezani Alison-Madueke, to obtain favorable oil contracts. Per the DOJ, the "proceeds of those illicitly awarded contracts totaling more than $100 million were then laundered in and through the United States and used to purchase various assets through shell companies, including luxury real estate in California and New York as well as the Galactica Star, a 65-meter superyacht."
An earlier announcement dated February 16, 2023 noted that the DOJ had repatriated to Nigeria "approximately $954,807 … in accordance with an agreement between the governments to repatriate assets the United States forfeited that were traceable to the kleptocracy of former Governor of the State of Bayelsa in Nigeria, Diepreye Solomon Peter Alamieyeseigha." The now-deceased Alamieyeseigha, per the DOJ, had "accumulated property worth millions of dollars through corrupt and illegal activities, including property in Rockville, Maryland" that was sold following a forfeiture order.
Declinations and Other Indicia of Enforcement Trends
The DOJ's Corsa Coal declination is discussed above and in detail below. On February 28, 2023, Kosmos Energy Ltd. announced in a 10-K filing that after a more-than-three-year investigation of activities in Senegal, "the SEC informed [Kosmos] in December, 2022 that it had closed its investigation with no enforcement action recommended."
In its 10-K filed on February 8, 2023, 3M Company stated that the company "is in discussions [with the DOJ and SEC] related to potential resolution" of the FCPA-related issues disclosed in July 2019. The issues relate to "certain travel activities and related funding and record keeping issues raising concerns, arising from marketing efforts by certain business groups based in China."
On February 23, 2023, Stanley Black & Decker, Inc. in its 10-K disclosed that the company "has identified certain transactions relating to its international operations that may raise compliance questions under the [FCPA] and has voluntarily disclosed this information to the" DOJ and SEC.
On May 2, 2023, Stryker Corporation filed a 10-Q in which the company disclosed that it is "currently investigating whether certain business activities in a foreign country violated provisions of the [FCPA] and have engaged outside counsel to conduct this investigation" and that "[w]e have been contacted by the United States Securities and Exchange Commission and United States Department of Justice and are cooperating with both agencies."
We note, as always, that the numbers in this chart are subject to limitations on available public information, and because neither the DOJ nor the SEC disclose official investigations statistics in anything close to real time and only some companies are likely to disclose such information through SEC filings or other means, our investigation statistics are necessarily incomplete.
U.S. Court Decisions
The notable court decision in this quarter was the reversal and remand by the Fifth Circuit that reinstated prosecutions against two Swiss nationals, Daisy Rafoi Bleuler and Paulo Jorge Da Costa Casqueiro Murta, involving an alleged international bribery scheme between U.S.-based businesses and Venezuelan officials. The appellate ruling reversed two decisions by a federal district court that dismissed the cases in favor of the defendants.
Policy and Legislative Developments
In addition to the various new and updated DOJ policies and guidance discussed at the beginning of this Review, there were several other policy-related developments during the quarter.
SCC Update. First, on March 29, 2023, the White House issued a fact sheet detailing recent steps taken under the U. S. Strategy on Countering Corruption (SCC), which was issued in December 2021.
Global Magnitsky Act Sanctions. Also on the policy front, the U.S. government continues to designate foreign officials as subject to economic sanctions and visa/immigration restrictions under the Global Magnitsky Human Rights Accountability Act.
For example, on January 26, 2023, the U.S. Department of Treasury (Treasury) sanctioned the former President of Paraguay, Horacio Manuel Cartes Jara (Cartes) and the current Vice President, Hugo Adalberto Velazquez Moreno (Velazquez), as well as several entities tied to them, for their participation in "rampant corruption that undermines democratic institutions in Paraguay." The Treasury press release noted that Cartes "pledged $1 million of his own wealth to buy the votes of legislators to support his unsuccessful push for constitutional reform to allow him to run for a second term in 2018" and "continued to influence legislative activities after leaving office, targeting political opponents, and bribing legislators to direct votes in his interest, with top supporters receiving as much as $50,000 monthly." The Treasury noted that Velazquez "engaged in corrupt practices to interfere with legal processes and protect himself and criminal associates from criminal investigations, including by bribing and threatening those who could expose his criminal activity." Also cited were both officials' ties to Hizballah and their receipt of bribes from that group, which has been designated as a terrorist-supporting organization by the United States.
On February 10, 2023, the Treasury sanctioned five current or former Bulgarian officials and entities tied to them "for their extensive involvement in corruption in Bulgaria." The press release discusses corruption related to various energy contracts, especially by Russian companies, "judicial bribery," and "legislative manipulation." These sanctions "build on" prior sanctions issued in June 2021.
Most recently, on April 5, 2023, the Treasury issued sanctions against Gary Bodeau, the former President of the Chamber of Deputies in Haiti. The Treasury announcement stated that "Bodeau was involved in several corrupt schemes wherein he engaged in efforts to influence the outcome of Haitian political appointments, including facilitating and soliciting bribes worth millions of dollars." The Treasury release noted that "Bodeau has also been sanctioned by Canada."
There were a number of international developments this quarter.
On January 16, 2023, the French National Financial Prosecutor's Office (PNF) published updated "Guidelines on the Implementation of Judicial Public Interest Agreements (Convention Judiciaire d'Intérêt Public – (CJIP)." These guidelines supersede the earlier 2019 version. Then, on March 14, 2023, the PNF and the French Anti-Corruption Agency (AFA) jointly issued a "practical guide" on anti-corruption internal investigations. Both documents provide insights regarding the French authorities' views on corporate anti-corruption compliance programs and internal investigations.
The Dutch authorities announced resolutions in two matters involving "Big Four" accounting firms at the end of 2022 and in Q1 2023, consistent with an increasing pattern in several countries of imposing criminal liability on auditors and other gatekeepers for their roles in alleged wrongdoing. On February 17, 2023, the Dutch Public Prosecution Service (Openbaar Ministerie, or OM) announced that it had found "criminal involvement" of "an accountancy firm in Amsterdam" in the preparation and filing in 2009 and 2010 of "false annual accounts" of a Dutch company. The firm will pay €150,000 (approximately $160,000) to settle OM's investigation. This settlement followed the imposition of a fine on another firm by a Dutch court at the behest of OM of €243,000 (approximately $252,000) on December 15, 2022 tied to allegations that the firm failed to timely report suspicious transactions related to corruption.
On February 23, 2023, an Indonesian court sentenced palm oil magnate Surya Darmadi to 15 years in prison and ordered him to pay more than $2 billion to the state as a result of a corruption scheme (including bribe payments to former senior provincial officials) that allowed Darmadi's company (PT Duta Palma) to clear protected forest and produce palm oil.
In other news, the UAE recently denied extradition of brothers Atul and Rajesh Gupta, South African businessmen who have been implicated in corruption and related activities involving former South African President Jacob Zuma. The South African authorities had been pursuing extradition of the Guptas for several years, and the Guptas were detained in Dubai under an Interpol Red Notice. According to the South African Justice Minister, South Africa will appeal the ruling, including with regard to how the extradition process was handled under the UN Convention Against Corruption (UNCAC), though the case is clouded by the fact that the location of the Guptas is unknown.
In February 2023, the U.S. Department of State granted Peru's request to extradite Peru's former President, Alejandro Toledo Manrique (Toledo), to stand trial for corruption charges related to Brazilian conglomerate Odebrecht and Brazil's massive Lava Jato investigation. On April 5, 2023, a U.S. magistrate judge ordered that Toledo be taken into custody pending extradition, but on April 7, the U.S. Court of Appeals for the Ninth Circuit issued a two-week stay to allow for potential further appellate review.
Singapore authorities experienced some rare political fallout in response to their decision to only issue "stern warnings" to six former Keppel Offshore & Marine (Keppel) managers accused of corruption in Brazil. In February 2023, members of the Singapore Parliament issued formal questions challenging this decision, with government ministers reiterating the difficulties in obtaining sufficient evidence, despite information and admissions made by Keppel in the company's December 2017 global settlement.
On March 5, 2023, according to press accounts, a judge in Ecuador approved a request from prosecutors "to charge former President Lenin Moreno with bribery over a contract for a Chinese-built hydroelectric plant in the South American nation." The indictment "links Moreno to work on the Coca Codo Sinclair hydroelectric project [built by Chinese entity Sinohydro] and states that the defendants received bribes of up to $76 million [from Sinohydro] as part of a corruption scheme that operated between 2009 and 2018." The authorities' release and other press reports noted that other persons under indictment include the former Chinese Ambassador to Ecuador.
On February 27, 2023, two Abu Dhabi state-owned funds agreed to pay 1Malaysia Development Berhad (1MDB), the Malaysian sovereign wealth fund, $1.8 billion to end a dispute brought by 1MDB and the Malaysian Ministry of Finance alleging that the Abu Dhabi entities, the International Petroleum Investment Company (IPIC) and Aabar Investments PJS (Aabar), facilitated the "looting" of 1MDB by various persons, including the former Malaysian Prime Minister. The 1MDB scandal and multinational investigations have resulted in FCPA-related dispositions with, among others, Goldman Sachs and former Goldman Sachs managing director Roger Ng. Two former senior executives at IPIC and Aabar have been convicted and sentenced by Abi Dhabi authorities for their roles in the scheme.
Finally, on January 31, 2023, Transparency International (TI) issued its 2022 Corruption Perceptions Index (CPI). TI's accompanying press release materials paint a grim picture, noting that "the CPI shows that corruption levels have stagnated or worsened in 86 percent of countries over the last decade." Further, TI asserted that "124 countries have stagnant corruption levels" and "the number of countries in decline [including such formerly higher-ranking countries as the U.K. and Austria] is increasing." The TI rankings and associated data continue to be a touchstone used by many companies for evaluating country corruption risks, though a number of other surveys and databases, such as the Corruption Risk Forecast and World Justice Project (WJP) Rule of Law Index, are also potentially valuable resources.
On March 6, 2023, Rio Tinto plc (Rio Tinto) agreed to pay the SEC a civil penalty of $15 million to settle charges that the company violated provisions of the FCPA. Specifically, the SEC alleged that Rio Tinto violated the FCPA's books and records and internal accounting controls provisions in connection with a scheme involving payments to a third-party consultant to retain existing mining rights in the West African country of Guinea. Rio Tinto is a metal and mining company incorporated in England and Wales with shares listed on the London Stock Exchange and with American Depository Shares that trade on the New York Stock Exchange (NYSE); Rio Tinto has another dual parent company incorporated in Australia (Rio Tinto Ltd.) with the same shareholders and board.
Between 1997 and 2006, the Guinean government granted Rio Tinto mining and exploration rights to four section blocks of the Simandou mountain region, home to one of the largest iron-ore deposits in the world. After the Guinean government changed leadership in 2008, it revoked Rio Tinto's rights for two of the four blocks (referred to as blocks one and two) for an apparent failure to develop the mines and granted the rights to a Rio Tinto competitor.
According to the SEC Order, thereafter, Rio Tinto took various steps to try to develop its remaining blocks (referred to as blocks three and four), including frequently sending high-level executives to the mine to improve the company's relationship with the Guinean government. In 2010, the Guinean government once again changed leadership, and the new administration reexamined all mining contracts.
In March 2011, Rio Tinto hired a French investment banker (French Investment Banker), who was the former classmate and close friend of a senior Guinean government official, to assist Rio Tinto in retaining its mining rights. In April 2011, Rio Tinto successfully secured its mining rights to blocks three and four by entering into an agreement with the Guinean government pursuant to which it paid $700 million to the Guinean public treasury.
The SEC's Order highlighted various red flags regarding the hiring and role of the French Investment Banker, including:
- The French Investment Banker commenced work without Rio Tinto having conducted "adequate due diligence that was required for retaining third parties."
- The French Investment Banker commenced work in March 2011 without a written agreement defining the scope of services or required deliverables. Rio Tinto did not execute a written contract with the French Investment Banker until July 7, 2011, one day before Rio Tinto paid the French Investment Banker his first installment of $7.5 million.
- Email correspondence among Rio Tinto's senior executives regarding the hiring of the French Investment Banker underscored his history and friendship with the senior Guinean official as the primary reasons for contracting him, and the French Investment Baker had no direct work experience relating to mining or Guinea.
- The French Investment Banker demanded payment as a lump sum fee, of which one Rio Tinto executive wrote in an email: "one big lump looks like a bribe and people will wonder where the money went."
- Email correspondence suggested that the French Investment Banker may have also been providing advice to the senior Guinean official at the same time he was apparently representing Rio Tinto's interest.
The SEC Order states that, despite the aforementioned red flags, Rio Tinto agreed to pay the French Investment Banker $10.5 million in two installments. On July 8, 2011, Rio Tinto paid one installment of $7.5 million to a Swiss bank account belonging to the French Investment Banker. On July 12, 2011, Rio Tinto placed the remaining amount of $3 million in an escrow account at the same Swiss bank to be released after December 31, 2015, contingent on Rio Tinto retaining mining rights for blocks three and four. Ultimately, and at the French Investment Banker's request, on February 25, 2016, Rio Tinto authorized the release of the $3 million from the escrow account to the French Investment Banker. The SEC Order also details efforts by the French Investment Banker to transfer certain funds to accounts in Hong Kong associated with the senior Guinean official.
According to the SEC Order, none of the payments to the French Investment Banker were accurately reflected in Rio Tinto's books and records, and Rio Tinto failed to establish sufficient internal accounting controls to detect or prevent the misconduct. Specifically, the SEC Order highlights the following controls issues:
- After a Rio Tinto executive confirmed the French Investment Banker's "connection to the Senior Government Official," a lower level employee at Rio Tinto conducted "a cursory background check" on the French Investment Banker, without any additional due diligence.
- Rio Tinto sent payments to the French Investment Banker through manual payment methods generally limited to payments of less than AUD $5,000, instead of following the company's process for higher amounts.
- The payments to the French Investment Banker were made out of Hamersley Iron Pty Limited, an Australian-based subsidiary of Rio Tinto Limited, instead of Rio Tinto plc. Lower level employees expressed concerns about the payments being accounted for out of Hamersley and a Rio Tinto executive explained, "the urgency and confidentiality prescribed for the payment meant we needed to make some quick decisions at the time on how to organize the payment and subsequent transfer." The SEC Order notes that Rio Tinto did not have a system in place to flag such payment irregularities.
Rio Tinto settled with the SEC without admitting or denying the findings. The SEC Order notes that Rio Tinto's cooperation and remediation were factors in the SEC's decision to settle. This included Rio Tinto's identification and timely production of key documents during the course of its own internal investigation, as well as the provision of facts developed during its internal investigation and making current or former employees available to the SEC. The SEC Order also notes that Rio Tinto terminated employees responsible for the misconduct and made enhancements to its internal accounting controls.
- Fifth FCPA Settlement Related to Conduct in Guinea. Rio Tinto's settlement with the SEC marks the fifth time in ten years that a company has settled an FCPA enforcement action for conduct that involved Guinea. Notably, three of the four other settlements, including Och Ziff (2016), BHP Billiton (2015), and Hyperdynamics (2015) related to alleged schemes to allow companies to obtain or retain mining or other concession rights in Guinea. Layne Christensen's 2014 settlement with the SEC primarily focused on alleged payments to officials to obtain improper tax savings and customs treatment in Guinea.
- Lengthy Investigation and Settlement Negotiations. According to public filings, Rio Tinto disclosed the misconduct that is the subject of this settlement on November 9, 2016, more than six and a half years ago. U.S. enforcement authorities repeatedly have faced criticism for the extended lengths of FCPA investigations, not in the least because of the difficulties that the uncertainty associated with an open investigation can create for cooperating parties. In response, senior U.S. enforcement officials, including from the SEC, have underscored the importance of expediting investigations. For example, in 2020, Stephanie Avakian, then Director of the SEC's Enforcement Division, stated that it was the SEC's intention to utilize its resources "to shorten the amount of time it takes to complete investigations and bring cases." In 2021, SEC Chair Gary Gensler reiterated the view, stating that the SEC "should focus on bringing matters to resolution swiftly." The ability of U.S. enforcement authorities to efficiently conduct and bring FCPA investigations to resolution will likely continue to impact parties' behavior, including in determining how to engage with authorities.
- No Coordinated Resolutions with Australian or U.K. Authorities. Rio Tinto's public filings noted that in addition to U.S. authorities, Rio Tinto self-reported the underlying conduct to U.K. and Australian authorities. According to publicly available information, Rio Tinto has not entered into resolutions related to this conduct in either Australia or the United Kingdom and the status of any ongoing investigations is unknown. Notably, however, the SEC acknowledged assistance it received from the Australian Securities & Investments Commission, the Australian Federal Police, and the U.K. Serious Fraud Office in its recent press release.
- Potential Payments to Former President Alpha Condé? The SEC Order states that the French Investment Banker was a former classmate of the senior government Guinean official at issue, with the two of them studying together at the Paris Institute of Political Studies. The Australian press identified the senior government Guinean official as Alpha Condé. Condé, who was elected president in 2010 as the "first democratically elected president … [after] a half century of authoritarian rule," also studied in France, including – according to some online sources – at the Paris Institute of Political Studies. The SEC also notes that funds from a Hong Kong account were used to pay for t-shirts for a re-election campaign (indicating that the official at issue was an elected official). President Condé was re-elected in 2015 and 2020, until he was ousted by a coup d'état in 2021. In 2022, the U.S. government sanctioned Condé for human rights abuses, and the military junta in Guinea requested corruption charges against Condé and others. It is noteworthy, however, that the SEC resolution does not include anti-bribery charges, even though it states that Rio Tinto's French Investment Banker gained "influence by offering money to a Guinean government official." There may be a lack of charges under the anti-bribery provisions due to a lack of jurisdictional or other statutory elements or because Rio Tinto never developed the relevant blocks or otherwise extracted any value.
On March 6, 2023, the SEC charged Flutter Entertainment plc (Flutter) with FCPA books and records and internal accounting controls violations stemming from the use of third-party consultants in Russia. In response, Flutter agreed to pay a monetary penalty of $4 million (after paying the consultants approximately $8.9 million). As is usual, the SEC provided no details regarding how the penalty was set. There was no disgorgement, while the SEC noted that the revenues from users in Russia were a significant source of revenue for the relevant business.
This case arises from a series of M&A transactions. Flutter, an Ireland-based global gaming and sports betting company (known for FanDuel, Betfair, and other brands), added the PokerStars online website to its portfolio in May 2020 by acquiring the Stars Group (Stars) in a $6 billion transaction. PokerStars enables individuals from around the world to join online lobbies and compete in cash poker games. Flutter is an issuer (with shares listed on NASDAQ); prior to Flutter's acquisition, Stars – based in Canada – was also listed on NASDAQ from 2015-2020 (as well as the Toronto Stock Exchange). In turn, Stars (previously known as Amaya) had gained the PokerStars brand by acquiring Oldford Group (Oldford) in 2014. The issues stem from consultants originally retained by Oldford, but maintained by Stars post-acquisition. Flutter paid the fine as successor in interest to Stars.
More specifically, the SEC Order states that between May 2015 and May 2020, Stars paid nearly $9 million to consultants in Russia in support of Stars's efforts to legalize poker in the country. These payments followed Stars's acquisition of Oldford in 2014, which had previously operated in Russia and had retained several Russian-based consultants. Per the SEC, "Russia was a so-called 'gray market' where poker was neither affirmatively permitted nor explicitly prohibited," and Stars had tasked the consultants with "lobby[ing] Russian government officials as part of its efforts to promote the legalization of poker in Russia and expand the Company's operations in the Russian market." The SEC noted that online poker was never legalized in Russia and that Flutter exited the market in the wake of Russia's invasion of Ukraine in 2022.
As noted, Oldford originally retained the three consultants discussed in the SEC Order without conducting due diligence. The SEC noted that "no due diligence was performed on the Russian Consultants … in connection with the PokerStars Acquisition [from Oldford], or in the subsequent months as [Stars] maintained the predecessor parent company's compliance program while supplementing it with additional controls." Following an internal company review of whether payments had been made to foreign government officials, Stars contacted the SEC "and other U.S. and Canadian regulators" in 2016. The SEC Order states that, in response to the internal review's findings, Stars adopted a new policy for external consultants, lobbyists, and lawyers that required due diligence, written contracts, and senior executive approvals. However, the SEC Order asserts that illicit payments continued to flow to the Russian consultants in contravention of the new policy. In particular, the "after-the-fact diligence was insufficient according to the Company's risk-based due diligence policies."
Additionally, the SEC Order notes that the consultants were retained with only "perfunctory" or no contracts until 2017 – all without anti-bribery or related provisions. Stars entered new contracts with the consultants in 2017 that contained such provisions, but per the SEC, Stars "failed to effectively enforce them." The SEC noted, for example, that the consultants consistently failed to provide detailed monthly invoices, backup and supporting documents, or monthly reports – all of which the contracts' provisions required. For one consultant, the SEC Order noted that "from 2015 to 2018," Stars "made payments totaling approximately $461,000 for expense reimbursements that lacked documentation and that the Company therefore could not substantively review." Some of these payments were tied to contemporaneous emails suggesting red flags, such as ties of payments to the success of specific legislation or indications of payments to government agencies without any evidence of official receipts.
The SEC Order also cited a number of transactions that raised questions regarding their purpose, for example indicating that internal Stars emails depicted some reimbursement payments for New Year's gifts to Russian government officials and another payment as reimbursement of a consultant's payments to Roskomnadzor, the Russian state agency responsible for administering internet censorship filters. Stars made payments to another consultant in the face of "[n]umerous red flags" such as the consultant being registered in Belize and receiving payments in an account in Latvia, "two foreign jurisdictions unrelated to the services … provided."
The SEC Order states that Stars failed to implement and maintain a system of internal controls over the inherited consultants and failed to make and keep accurate books and records regarding its payments to these consultants. Stars/Flutter did not admit or deny the SEC's findings but agreed to cease and desist from future violations. The SEC Order made note of Flutter's cooperation efforts, including "sharing facts developed in the course of its own internal investigation and forensic accounting reviews, providing translated copies of various documents and relevant witness statements, and encouraging parties outside of the Commission's subpoena power to provide relevant evidence and information." The SEC Order also cited various remedial efforts, including program and controls upgrades related to third parties and the termination/wind-down of the consultant relationships at issue.
- Post-M&A Compliance Integration Issues. The SEC Order recites various facts supporting the SEC's allegation that Stars failed to conduct adequate due diligence on legacy consultants gained in acquisition, despite their operating in a high-risk country (Russia) and evidence of other red flags.
- Program Execution Issues. The SEC Order noted that Stars self-reported potential issues in 2016 and adopted new due diligence, contracting, and monitoring processes for consultants – and also reached out to the SEC and other regulators. However, the Order sets out many areas in which the company did not follow or enforce those new processes, which resulted in the Russian consultants operating without adequate due diligence, written contracts, or sufficient proof of services rendered.
On March 8, 2023, the DOJ announced it had declined under the Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP) to prosecute the Corsa Coal Corporation (Corsa Coal), a U.S. coal mining company headquartered in Pennsylvania, for violations of the anti-bribery provisions of the FCPA. According to the declination letter, the DOJ declined to prosecute despite evidence that, "from approximately late 2016 until early 2020," Corsa Coal personnel "paid approximately $4.8 million to an Egypt-based third-party intermediary that Corsa [Coal]'s employees knew would be used, at least in part, to pay bribes to Egyptian government officials." The officials included the Chairman of Al Nasr Company for Coke and Chemicals (Al Nasr), an Egyptian state-owned and state-controlled company. According to the letter, Corsa Coal secured approximately $143 million in coal contracts from Al Nasr as a result of the bribe payments.
The DOJ declined to prosecute Corsa Coal on the basis of:
- Corsa Coal's "voluntary self-disclosure"
- Corsa Coal's "full and proactive cooperation … (including its provision of all known relevant facts about the misconduct, including information about the individuals involved in the conduct)" and agreement to continue to cooperate in ongoing investigations and any resulting prosecutions
- "[T]he nature and seriousness of the offense"
- Corsa Coal's "timely and full remediation, including terminating a sales representative who engaged in the bribe scheme and substantially improving its compliance program and internal controls"
- Corsa Coal's agreement to "disgorge the amount of its ill-gotten gains that it is able to pay"
Likely as a result of the cited cooperation, at least two former Corsa Coal executives have been charged for their roles in the bribery scheme. In November 2021, former Head of International Sales Frederick Cushmore, Jr. pleaded guilty to one count of conspiracy to violate the FCPA's anti-bribery provisions in connection with the scheme; and in March 2022, the DOJ brought FCPA, money laundering, and wire fraud charges against former Vice President Charles Hunter Hobson for his alleged role in the scheme as the executive in charge of the Al Nasr relationship (see FCPA Winter Review 2022 and FCPA Spring Review 2022). The declination agreement with Corsa Coal does not prevent the government from prosecuting any other individuals involved in the scheme.
The DOJ required Corsa Coal to disgorge $1.2 million per the CEP. While the DOJ calculated that Corsa Coal earned approximately $32.7 million in profits from the criminal scheme, the DOJ noted that, after conducting an "inability to pay" analysis, the DOJ had determined that paying disgorgement in excess of $1.2 million would "substantially threaten the continued viability" of Corsa Coal.
Also on March 8, 2023, Corsa Coal announced that in addition to the DOJ declination, the Royal Canadian Mounted Police had concluded an investigation into the Egypt bribery scheme "without recommending that any charges be laid." Corsa Coal's shares have been traded on stock exchanges in Canada and the United States; the current market capitalization of the company is in the range of $20-25 million (USD), based on share prices at the time of publication.
- First Declination Since Revisions to CEP. The recent CEP revisions expanded eligibility for declinations after voluntary disclosure, including the possibility of declination despite the existence of "aggravating circumstances," such as egregious or pervasive misconduct; involvement by executive management; significant resulting corporate profits; and criminal recidivism. The declination letter does not specify whether any such aggravating circumstances were present in this case – for example, whether the management roles of the charged former personnel qualified as "executive management" involvement in the misconduct. The letter also does not provide detail as to how the cited "substantially improved" compliance program and controls map onto the revised CEP's requirements for an effective compliance program.
- "Inability to Pay" Analysis. In seeking to resolve a criminal case, a company may assert that it is unable to pay the criminal fine "despite agreeing the proposed amount is otherwise appropriate based on the law and the facts." The DOJ's "inability to pay" analysis takes into account factors such as the company's financial situation, collateral consequences of the fine such as layoffs and product shortages, and whether the fine will impact the company's ability to pay restitution.
- Focus on Individual Accountability. The charges against Cushmore and Hobson reflect the DOJ's continued priority on pursuing individual wrongdoers. In a March 2, 2023 speech, Deputy Attorney General (DAG) Lisa Monaco asserted that "individual accountability … remain[s] the [DOJ's] most important priority in corporate enforcement." DAG Monaco noted that in 2022, the DOJ's Fraud Section "secured more individual convictions at trial…than in any of the previous five years." The declination for Corsa Coal may also be intended to signal that corporate help to advance this goal can be rewarded.
On March 21, 2023, Swedish telecommunications company Telefonaktiebolaget LM Ericsson (Ericsson) agreed in court to plead guilty to one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of conspiracy to violate the internal controls and books and records provisions of the FCPA. The plea was part of a resolution with DOJ of non-criminal breaches of Ericsson's 2019 DPA and the charges are the same ones that were detailed in Ericsson's 2019 DPA, covering the company's conduct in six countries during the period 2010-2016. The agreement had been announced by the DOJ and Ericsson on March 2, 2023.
Per the DOJ's press release, Ericsson entered the plea agreement "after breaching … the 2019 DPA by violating the agreement's cooperation and disclosure provisions." Specifically, the DOJ asserted that Ericsson failed to "disclose all factual information and evidence related to scheme[s] [in two countries, including China, and] … also failed to promptly report and disclose evidence and allegations of conduct related to its business activities in Iraq that may constitute a violation of the FCPA." Commenting on the Company in the publicly filed documents associated with the plea agreement, DOJ noted: "[Ericsson] has significantly enhanced its compliance program and internal accounting controls through structural and leadership changes, including but not limited to the hiring of a new Chief Legal Officer and new Head of Corporate and Government Investigations and the establishment of a multi-disciplinary Business Risk Committee comprised of Group-level senior executives … and has committed to continuing to implement and test further enhancements." Further, DOJ stated, "[Ericsson] has significantly enhanced its cooperation and information sharing efforts."
The new plea agreement, per the DOJ, "requires Ericsson to pay an additional criminal penalty of $206,728,848 – which includes the elimination of any cooperation credit originally awarded pursuant to the DPA." The plea agreement states that, therefore, Ericsson's "overall criminal monetary fine [for the conduct subject to the plea is] $727,379,280, which reflects a fine at the midpoint between the low end and the high end (which in this case is the statutory maximum fine) of the applicable Sentencing Guidelines fine range."
The plea agreement ended Ericsson's 2019 DPA, and Ericsson agreed to a "term of probation through June 2024." In December 2022, Ericsson agreed to a one-year extension of the company's ongoing independent compliance monitorship, which is now set to also end in June 2024. Under the plea agreement, the DOJ is able to determine in its sole discretion whether Ericsson breached any of its commitments, except for certain specified obligations. For the specified obligations listed in the plea agreement, the DOJ will notify the Probation Office and the relevant court, and the court will decide if a breach occurred. In the DOJ press release, AAG Kenneth Polite, Jr. stated, "[c]ompanies should be on notice that we will closely scrutinize their compliance with all terms of corporate resolution agreements and that there will be serious consequences for those that fail to honor their commitments."
Ericsson stated in its press release that "[t]his resolution is a stark reminder of the historical misconduct that led to the DPA" but that the company "continue[s] to implement stringent controls and improved governance, ethics and compliance across our company, with corresponding enhancements to our risk management approach," leading to "a very different company today [due to] important changes since 2017 and over 2022."
Miller & Chevalier is co-counsel to Ericsson in relation to this matter.
On January 30, 2023, Saman Ahsani, the former Chief Operating Officer of Monaco-based intermediary company Unaoil, was sentenced pursuant to an earlier plea agreement related to allegations of conspiracy to violate the FCPA, money laundering, and obstruction of justice. The federal court in Houston imposed a monetary judgment in the amount of $1,500,000 and a sentence of one year and one day.
Later, on February 23, 2023, the same court denied a motion by one or more media companies to unseal the sentencing memoranda and other records about the Ahsani case. The court upheld an earlier order, which stated in part that such release could "jeopardize the defendants' safety, the safety of their families and the integrity of the Government's ongoing investigation." The court found that media First Amendment rights "cannot trump the rights of the Defendant to be safe from harm and the Government to have its investigations free from impairment" under the current circumstances, though the order noted that such circumstances could change in the future. The press organizations filed an appeal to this ruling on April 7, 2023.
On January 25, 2023, Jose Luis De Jongh Atencio (De Jongh), a former procurement manager for Citgo, and Roberto Enrique Rincón Fernández (Rincón), a U.S.-based businessman, were sentenced to prison for their participation in a corruption and money laundering scheme involving Petroleos de Venezuela (PDVSA), the Venezuelan state-owned oil company.
According to the DOJ's press release, De Jongh "accepted more than $7 million in bribe payments from businessmen" in exchange for assistance in obtaining contracts with Citgo, a Houston-based subsidiary of PDVSA. The DOJ also stated that De Jongh "directed the creation of fake invoices to justify the payment[s]" and "laundered the bribe proceeds through U.S. and international bank accounts and used the funds to purchase real property located in the Houston area." The DOJ noted in addition, that "De Jongh also received bribes in the form of gifts and other things of value … including tickets to a 2014 World Series Game, Super Bowl XLIX in 2015, and a U2 concert." A federal court sentenced De Jongh to four years in prison and one year of supervised release. The case involving De Jongh has been also discussed in our FCPA Spring Review 2021 and FCPA Winter Review 2022.
Per a DOJ press release, Rincón plead guilty in June 2016 to "one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), one count of violating the FCPA and one count of making false statements on his 2010 federal income tax return." The DOJ alleged that Rincón "agreed to pay bribes and other things of value to PDVSA purchasing analysts to ensure that his … companies were placed on PDVSA bidding panels, which enabled the companies to win lucrative energy contracts with PDVSA." We discussed Rincón's guilty plea in the FCPA Summer Review 2016.
A court sentenced Rincón to 18 months in prison minus time served, and one year of supervised release. The judge noted that Rincón had "extraordinarily cooperated" with the ongoing investigations into corruption at PDVSA. Rincón's co-conspirator, Abraham Jose Shiera Bastidas, was sentenced in October 2022.
These sentences are the latest developments in a long-standing investigation of corruption at PDVSA that has resulted in numerous charges and guilty pleas by former PDVSA officials, businessmen, and intermediaries.
On January 26, 2023, a grand jury in Miami, Florida indicted former Venezuelan Supreme Court President and current Supreme Court Justice Maikel José Moreno Pérez (Moreno) on charges of "conspiring to launder and laundering bribes he received in exchange for using his position to resolve civil and criminal cases in Venezuela to favor bribe payers." The indictment alleges that Moreno received more than $10 million in bribes in exchange for using his position to influence the resolution of criminal and civil cases between 2014 and 2019. Per the U.S. government's press release, such actions included dismissing criminal charges, ordering home confinement for defendants, and taking other favorable official actions in civil cases. The press release also asserts that Moreno allegedly authorized "the judicial seizure of a General Motors auto plant (valued at approximately $100 million) as part of a civil dispute in exchange for a percentage interest in proceeds from the sale of the plant." The release also states that Moreno "used bribe proceeds to purchase or renovate real estate around the world" – including a villa in Tuscany.
As previously reported, Luis Enrique and Ricardo Alberto Martinelli Linares each were sentenced in July 2022 to 36 months of imprisonment and other penalties, having previously pleaded guilty and admitted to laundering $28 million in a bribery and money laundering scheme involving Odebrecht, the Brazil-based construction conglomerate, for the benefit of their father, Panama's former president Ricardo Martinelli.
On February 14, 2023, the DOJ announced multiple FCPA-related and money laundering charges against a U.S.-based former Freepoint Commodities oil and gas trader, Glenn Oztemel, and a Brazilian-based "intermediary," Eduardo Innecco. The DOJ alleged that Oztemel used money from two different trading firms to bribe Brazilian officials from the Brazilian state-owned oil and gas company Petrobras to obtain and retain business with them. The scheme allegedly occurred from 2010 to 2018, and the DOJ alleged that Oztemel "disguised" payments to Petrobras officials "as consulting fees and commissions" to Innecco, and that all of the "co-conspirators allegedly used coded language to refer to the bribes and communicated using personal email accounts, fictitious names, and encrypted messaging applications."
On March 3, 2023, a federal court in the Eastern District of New York sentenced Ng Chong Hwa, also known as Roger Ng, a former Managing Director for Goldman Sachs, to 10 years of imprisonment for various FCPA and related money laundering charges. Ng had been convicted on April 8, 2022 following a nine-week jury trial. Later, the district court also ordered Ng to forfeit $35 million. As reported in our 2021 FCPA Winter Review, Goldman Sachs pleaded guilty to conspiracy to violate the FCPA and paid over $2.9 billion as a part of its deferred prosecution agreement with the DOJ.
During the sentencing process, Ng had requested that his sentence be reduced to time served in part due to the traumatic Malaysian jail conditions he experienced while incarcerated there. The DOJ had opposed this request in its sentencing filings, calling for a 15-year sentence. According to press accounts of the sentencing hearing, the judge noted that Ng's crimes "threaten[ed] confidence in democracy and government" and that "there is a strong need for general deterrence here, especially for senior executives of other companies who might consider engaging in such misconduct." Ng's attorneys have indicated that they will appeal Ng's conviction. On May 1, the court granted a three-month delay to Ng regarding the start of his prison term; he is now scheduled to report in on August 7, 2023.
According to press reports, a document unsealed on March 21, 2023 revealed that Luis Alvarez Villamar (Alvarez), a former manager of the Ecuadorian company Decevale, was sentenced to 26 months in prison on December 16, 2022 for accepting more than $3 million in bribes from an investment company related to investments in Ecuador's police pension fund, Instituto de Seguridad Social de la Policía Nacional (ISSPOL). Alvarez entered a plea agreement in May 2021. According to press accounts and DOJ documents, Alvarez had been involved in Decevale's management of pension fund investments, and received payments from a local investment advisor in a Miami-based bank account. Case documents state that some of the negotiations related to the payments occurred over WhatsApp while Alvarez was in southern Florida.
Superseding Indictment of FTX Founder Sam Bankman-Fried Introduces FCPA-Related Allegations Focused on China
On March 27, 2023, the DOJ filed a superseding indictment of Sam Bankman-Fried, founder and principal of bankrupt cryptocurrency exchange company FTX Trading Ltd. (FTX), that included new charges adding one count of conspiracy to violate FCPA's anti-bribery provisions to a range of other fraud and other charges linked to FTX's business and demise.
According to the indictment, in "early 2021" Chinese authorities froze "cryptocurrency trading accounts" with a value of approximately $1 billion held by FTX's affiliated company, Alameda Research (Alameda), as part of an investigation. Bankman-Fried and others "acting at his direction" tried "numerous methods to unfreeze the [a]ccounts or otherwise to regain access to the cryptocurrency in the [a]ccounts" to no avail. The DOJ alleges that "after months of failed attempts to unfreeze the [a]ccounts," Bankman-Fried "agreed to and directed" "a bribe payment of cryptocurrency then worth approximately $40 million from Alameda's main trading account to a private cryptocurrency wallet" – at which time the Chinese Alameda accounts were unfrozen.
According to press accounts, Bankman-Fried has pleaded not guilty to these charges, and his lawyers indicated that they may challenge the new charges under the terms of Bankman-Fried's extradition from the Bahamas.
On February 8, 2023, the U.S. Court of Appeals of the Fifth Circuit (Court of Appeals) reversed and remanded the decision by the U.S. District Court for the Southern District of Texas to dismiss all counts charged to two Swiss nationals, Daisy Rafoi Bleuler (Rafoi) and Paulo Jorge Da Costa Casqueiro Murta (Murta), related to an alleged international bribery scheme between U.S.-based businesses and Venezuelan officials.
In April 2019, both Rafoi and Murta were charged with conspiracy and money laundering offenses in connection with bribes allegedly paid by vendors to various individuals at Venezuela's state-owned oil company, PDVSA. The indictment alleged that Rafoi and Murta, both of whom were Swiss wealth managers operating separate businesses "between 2011 and 2013, … working as agents for their co-conspirators, laundered the proceeds of the bribery scheme through numerous financial transactions, including through international wire transfers to and from bank accounts that they opened overseas in the names of various companies."
As reported in our FCPA Winter Review 2022, in November 2021, a U.S. federal district court in Houston dismissed the charges against Rafoi for lack of jurisdiction. The court noted that Rafoi, as a foreign national, had no ties to the U.S. and held that the indictment, among other things, did not establish that Rafoi was an "agent" of the relevant domestic concern. In July 2022, the same district court granted Murta's motion to dismiss charges against him based on lack of jurisdiction, lack of due process, vagueness, and statute of limitation issues.
The Court of Appeals reviewed the district court's conclusions on a de novo basis, including as to questions of jurisdiction and the application of the language regarding "agents" in the FCPA.
The Court of Appeals concluded that the district court erred in finding that it did not have subject-matter jurisdiction over the charges brought in the indictment. The Court of Appeals concluded that the indictment sufficiently alleged that both Rafoi and Murta were "agents" under the applicable pleading standard and that the term "agent" as used in the FCPA and anti-money laundering laws is not unconstitutionally vague when used "as a jurisdictional basis to prosecute a foreign national." The Court held therefore that Rafoi (under § 78dd-2) and Murta (under § 78dd-2 and § 78dd-3) were properly charged as "enumerated" actors. The Court of Appeals did not address the question of whether Rafoi and Murta could be reached as conspirators with "enumerated" actors, which was a key issue in the Second Circuit's earlier opinion in U.S. v. Hoskins.
After analyzing the minimum constitutional standards for an indictment and expressing that the "government need not describe all evidentiary details establishing the facts of the alleged agency relationship," the Court of Appeals concluded that granting the motion to dismiss on the jurisdictional grounds under analysis was improper "because the indictment adequately conforms to minimal constitutional standards."
Regarding Murta's potential liability under § 78dd-3 based on his meeting with co-conspirators in Miami, the Court of Appeals noted that for non-U.S. citizen cases, the U.S. government needs to demonstrate "a sufficient nexus between the conduct condemned and the United States such that application of the statute would not be arbitrary or fundamentally unfair to the Defendant." To examine that nexus, the Court "looked to the aim of the charged activity and fair-warning principles," concluding that Murta's actions constituted a harm to U.S. interests and that Murta "had fair warning that his conduct could be criminally prosecuted."
Finally, the Court of Appeals concluded that with regard to the money-laundering charges brought under 18 U.S.C. § 1956(f), conduct occurred "in part" in the United States if the actor "commit[s] some portion of the offense while in the United States" and that that there is "no physical-presence requirement."
Miller & Chevalier is counsel to Rafoi in relation to this matter.
White House Releases Fact Sheet Summarizing One Year of Implementing the U.S. Strategy on Countering Corruption
On March 29, 2023, the White House issued a fact sheet detailing recent steps taken under the U.S. Strategy on Countering Corruption (SCC) (covered here). The SCC – the first of its kind – was announced December 6, 2021, and is organized into five pillars of actions to be taken by the U.S. government.
Pillar One: Modernizing, Coordinating, and Resourcing U.S. Efforts to Fight Corruption
The White House emphasized recent efforts to "align U.S. government authorities and policy" and to "increase intra- and inter-agency coordination" to counter corruption threats. Of particular note, the fact sheet noted that the DOJ prioritized "combating corruption" and "advancing international anti-corruption efforts and partnerships with foreign authorities" in its 2022-2026 Strategic Plan. The fact sheet also stated that several agencies had invested in anti-corruption staffing and resources, including the DOJ and the Federal Bureau of Investigations (FBI), which deployed dedicated resources to "investigate and prosecute domestic and foreign corruption."
Pillar Two: Curbing Illicit Finance
The U.S. government took steps to "address vulnerabilities" in financial systems that "corrupt actors exploit to launder and hide corrupt payments and proceeds." The White House highlighted the Treasury Department's efforts to prevent criminals from using shell and front companies to launder illicit proceeds, including the issuance of a new rule which requires certain entities to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). FinCEN also issued an advisory on kleptocracy and foreign corruption that urges U.S. financial institutions to focus their efforts on detecting the proceeds of foreign public corruption. The fact sheet also asserted that multiple agencies, including the DOJ and State Department alongside federal law enforcement, have continued to strengthen cross-border partnerships, including through international asset recovery.
Pillar Three: Holding Corrupt Actors Accountable
The White House highlighted several examples of independent and coordinated actions between the U.S. and its international partners in this area. Cited efforts include an increased number of Global Magnitsky sanctions on "current or former public officials from Central America, Africa, the Western Balkans and Eastern Europe," "over 80 visa restrictions" on foreign officials and their relatives under the Northern Triangle-United States Enhanced Engagement Act, and a number of recent enforcement and repatriation of funds actions (e.g., the DOJ's repatriation of over $20 million in assets stolen by a former Nigerian dictator). The fact sheets states that the U.S. also has taken steps to fight kleptocracy, including indictments resulting from the interagency Task Force KleptoCapture and attempts to get access to information related to assets linked with foreign corruption that can be retributed by the Kleptocracy Asset Recovery Rewards Program.
Pillar Four: Preserving and Strengthening the Multilateral Anti-Corruption Architecture
The White House highlighted several alliances, international events, and multilateral efforts, including the upcoming U.S.-hosted 10th Conference of the States Parties (COSP) of the UN Convention against Corruption (UNCAC) (2023 UNCAC COSP), which will occur in December 2023. The fact sheet noted that the U.S. had signed on to the revised OECD Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions, which was issued in November 2021 (two weeks before the SCC's formal issuance). The White House also emphasized increased participation in multilateral and international initiatives, including "a process to establish an Indo-Pacific Economic Framework for Prosperity (IPEF)" – including "a pillar on tax and anti-corruption" that will include "measures to prevent and combat corruption and to enhance transparency in real estate transactions and beneficial ownership." Likewise, the United States continued its participation in the Group of European States Against Corruption (GRECO) and the North Atlantic Treaty Organization (NATO) Building Integrity program. The White House stated that it will continue to further forge multilateral alliances against corruption, such as by undergoing a GRECO evaluation of U.S. anti-corruption systems and supporting updates to the Extractive Industries Transparency Initiative (EITI) Standards on beneficial ownership and transparent revenue disclosure in the extractives industry.
Pillar Five: Improving Diplomatic Engagement and Leveraging Foreign Assistance
The White House described several recent initiatives, including the United States Agency for International Development (USAID)'s Reporters Shield, "an insurance product to defend journalists, media outlets and organizations from spurious lawsuits" meant to silence their reporting, as well as the launching of USAID's Countering Transnational Corruption Grand Challenge for Development. Moreover, the fact sheet mentions the State Department's increased funding of USAID-based "regional Anti-Corruption Hubs to promote practices in line with international standards and UNCAC." The State Department also established the Global Initiative to Galvanize the Private Sector as Partners in Combating Corruption (GPS) with the participation of 25 companies. The White House said that diplomatic and foreign assistance will continue, mentioning partnerships and initiatives such as the future issuance of a "Reference Guide to USAID Anti-Corruption Operational Safeguards that will highlight measures to ensure integrity in U.S. foreign assistance."
The fact sheet also previews additional steps to come in the U.S. government's efforts under the SCC to increase interagency and transnational cooperation in the fight against corruption. Anticipated areas of focus include the further expansion of U.S. partners' capacity against illicit finance, increased participation in multilateral alliances against corruption, and continued funding to civil society initiatives to reduce the misuse of public funds.
French Anti-Corruption Authorities Publish New Guidelines on Judicial Public Interest Agreements and Internal Investigations
There have been two new pieces of guidance issued by French authorities this quarter. First, on January 16, 2023, the French National Financial Prosecutor's Office (PNF) published updated guidance on Convention Judiciaire d'Intérêt Public (CJIP), "Guidelines on the Implementation of Judicial Public Interest Agreements.” The newly published guidelines supersede the initial guidance issued in 2019. Second, on March 14, 2023, the PNF and the French Anti-Corruption Agency (AFA) jointly issued a "practical guide" on anti-corruption internal investigations. Both documents provide insights regarding the French authorities' views on key elements companies should consider when implementing their anti-corruption programs or conducting investigations.
CJIPs are similar to U.S. DPAs, and can be offered by French authorities to companies under either preliminary or judicial investigations. CJIPs are considered a tool for the authorities to sanction improper corporate behavior while also providing incentives for companies to self-disclose and cooperate with the investigation process. However, unlike DPAs, CJIPs are subject to a judicial process that can have higher costs in reputation and uncertain financial and legal consequences.
The revised CJIP guidelines describe the entire process of obtaining a CJIP, its legal framework and implementations, the conditions that may be imposed on the signing company, the process of validation of a CJIP by the courts, and the effects of said agreements. The CJIP guidelines also discuss what the French authorities expect from companies during the CJIP assessment process, reinforcing that companies should show good faith by cooperating with the PNF during the investigation and providing as much relevant information as possible regarding potential offenses. During the negotiation of a CJIP, all information provided to the PNF by the company under investigation is subject to strict confidentiality that prevents the PNF from using it in any future litigation process.
According to the CJIP guidelines, the obligations on a company that may arise from a CJIP are (i) the imposition of a public interest fine that is set in proportion to the improper benefits derived by the company from the misconduct; (ii) submission to a compliance program for a maximum of 3 years under the AFA's supervision; and (iii) potential compensation to the victims of the criminal behavior.
The CJIP guidelines explain how the PNF arrives at a fine amount, which cannot exceed 30 percent of the company's average annual turnover, calculated based on the last three annual turnovers prior to the date when the misconduct was recorded. When assessing the financial benefits that the company obtained through the actions under investigation, the PNF takes into consideration both direct and indirect benefits, and in cases of attempted misconduct, the expected benefits and the chances of success. The guidelines also include a set of criteria that can increase or mitigate the final fine amount. For instance, obstructing the investigation or creating tools to conceal offences could raise the fine by up to 30 percent, while self-disclosure of the facts by the company to the PNF could result in a discount of up to 50 percent.
The CJIP guidance also addresses compliance program supervision by the AFA – the French version of a monitorship - which can be imposed for a maximum of three years and aims to ensure the existence and implementation of compliance and control measures within the company, along with procedures listed in the French Criminal Code. Such programs should include, at a minimum: (i) a Code of Conduct; (ii) an internal alert system; (iii) a risk map; (iv) procedures for assessing the situation of customers, first-tier suppliers, and intermediaries with regard to risk mapping; (v) internal or external accounting control procedures; (vi) a training system for managers and staff; and (vii) a disciplinary system. The AFA reports periodically on the implementation of the program. If the AFA believes that all the obligations of the program have been met by the company, the duration of the supervision may be reduced to two years. During the negotiation of a CJIP, when a supervised compliance program is recommended, the AFA also provides an estimate of the maximum costs that the company may incur in designing and implementing the program, and the guidelines explain the process for these calculations.
The process for victim compensation is also detailed in the guidelines, including the different steps that must be followed to comply with the identification of victims, along with the calculation of and notification to victims of compensation amounts.
All CJIPs must be validated by a judge following a public hearing that involves the PNF, the company, and the victims. If the company agrees to and executes the CJIP, the prosecution will be ended. However, the promise of no further prosecution only applies to (1) the facts set forth in the agreement; and (2) any conduct of similar nature committed in a determined territory and period discovered subsequently and unknown to the company when negotiating the CJIP.
The "practical guide" covering anti-corruption internal investigations issued in March provides insight into the AFA's and PNF's views on how companies should address and manage internal investigations under French law, focusing on three pillars: (i) the different ways an investigation can be initiated; (ii) development of investigations and the main concerns companies should consider; and (iii) how to conclude an investigation.
Regarding the collection and use of personal data and information from employees, the guide states that companies must consider General Data Protection Regulation (GDPR) rules that impose, for example, a duty to inform workers about what information is being collected, how the data is being used, and how long the data will be stored by the company. The guide notes that companies may collect information that is physically present in an employee's office, along with information stored on their business equipment unless the information is marked as "personal." The same rule applies to personal emails or messaging applications linked to the employee's personal accounts, even if they potentially include information relevant to the investigation.
The Indonesian government secured a corruption and money laundering conviction in February against a prominent businessman – a potentially significant development in the world's fourth most-populous country, ranked 110th in Transparency International's Corruption Index. On February 23, 2023, an Indonesian court sentenced Surya Darmadi to 15 years in prison and ordered him to pay more than $2 billion to the state as a result of a corruption scheme that allowed Darmadi's company (PT Duta Palma) to clear protected forest and produce palm oil. Darmadi was accused of paying bribes to provincial officials in Riau (islands near Sumatra and Borneo), including a former provincial governor, to allow his palm oil companies to operate on protected lands, converting their designation from natural forests to agricultural land.
Darmadi was originally named a suspect by Indonesia's Corruption Eradication Commission (KPK) in 2014. According to press reports, the KPK issued a travel ban in 2019, but Darmadi had already fled the country. He was named a suspect in additional allegations of bribe payments in August 2022, and he voluntarily returned to the country weeks later and was arrested and indicted on September 8, 2022.
The amount of the fine to be paid to the state represents both losses to the state as well as, reportedly for the first time, "losses to the economy," which allowed the court to impose the substantial financial penalty. According to press reports, Darmadi is appealing.
The global palm oil industry is worth approximately $60 billion, and Indonesia and Malaysia account for approximately 85% of global production. A recent TI Indonesia report noted that the palm oil sector continues to see a "vulnerability to corruption … caused by weak licensing mechanisms, oversight and the involvement of important government actors."
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